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Tuesday, May 13, 2014

Insurance as Collateral (Part V)

Unquestionably, a requirement in today’s world - insurance - can be so complex that it often leaves us with many questions. This is the fifth (and final) of several insurance blogs to address various vital components of your community’s health.

Please scroll down to read the previous four insurance-related posts for more details. With insurance contracts,
the devil is in the details. It is the
little unexpected items that may trip you.
For example, what happens if the vendor you are working with files
bankruptcy? In one instance the insurance
company did not have to pay on a claim, because the contractor was unable to
meet the deductible or self-insured-retention (SIR) requirements. To avoid this, you should require disclosure
and approval of deductibles or SIRs and discuss them with your insurance agent
and/or attorney.

Another “unexpected” can
happen when dealing with a claim that arises a couple of years after a project
is finished. Very often, the vendor’s
insurance is only triggered when claims are made, not when the actual problem
actually occurred. A “claims-made”
coverage will only respond to a claim that is presented while the policy is in
force or during an extended reporting provision.

Because of
this, it is critically important that the Homeowners Association insist on an
extended reporting period (known as a “tail” since it covers your tail) of
several years as a part of the insurance coverage. Keep
in mind the regular liability policy will not cover professional liability
losses, and therefore your contractor may be exposed in the event of a claim
arising out of professional services rendered on the project. Normally,
professional liability policies can be purchased with a three year “tail”. Regular liability policies may permit a five
year “tail”. If you can get a longer
tail in your contract, do so.

Another
exception can occur when it comes to coverage for water damage. Check to make sure coverage won’t be denied
if flooding occurs when a sump pump fails due to loss of electricity – the
policy may need an endorsement to cover this situation.

Trying to
plan for every contingency can be nerve-wracking: What do you think of when you are considering
electronic data insurance coverage? In
our electronic age, the risk is only growing for losses related to integrated systems
with a building’s elevator, lighting, heating, ventilation, HVAC and security
systems. The dollar amount for coverage
may need to be increased to account for this.

The “green”
movement has created situations not normally covered with standard
insurance. The trend of having vegetated
roofs may introduce an exception under “Property Not Covered” for lawns, trees,
shrubs and plants that are part of a roof – such property is an insured part of
a building. The vegetation may not be covered for loss by dampness or dryness
of atmosphere or soil, changes in or extremes in temperature, disease, frost,
hail, rain, snow, ice or sleet. The “Additional Coverage” for mold does not
apply to vegetated roofs.

As you can see from this and
previous blogs, providing the greatest amount of protection requires that Boards of Directors rely upon
the advisement of several outside experts (attorney, insurance broker,
community manager, CPA, engineer, etc.) in making the best decisions possible
for their community.